Презентация на тему Introduction to economics

supply depends on the responsiveness of demand to a

change in price.

Market supply and demand

to a change in price

One of the most important

concepts in economics

Price elasticity of demand varies enormously from product to product ( oil & cabbage)

demanded to changes in a good’s own price.

The price

elasticity of demand is the percent change in quantity demanded divided by the percent change in price that caused the change in quantity demanded.

demand
number and closeness of substitute goods
proportion of income spent

on the good
the time period

10% fall in quantity demanded

-10%/40% = -0.25

generally slope downward
Price and quantity change in opposite directions
A

rise in price ( a positive figure) will cause a fall in the quantity demanded ( a negative figure)
A fall in price will cause a rise in quantity demanded
When working out price elasticity of demand we either divide a negative figure by a positive figure
Or a positive figure by a negative figure
Either way end up with a negative figure

the most important applications of price elasticity of demand

concerns total amount of money consumers spend on a product
Total Consumer Expenditure - TE
Price multiplied by Quantity
TE = P x Q

consumer expenditure
TE = P × Q
Illustrating TE graphically
Effects of

a price change: elastic demand
P rises: TE falls
P falls: TE rises

a price of £2 per unit (P)

Total is

£6 million (TE)

the total revenue (TR) received by firms from the

sale of the product (before taxes and other deductions)

Expenditure

demand between two points

the curve

Common mistake to think of the elasticity of

the whole curve

2 exceptions - special cases – 2 curves on one diagram

a measure used in economics to show the responsiveness,

or elasticity, of the quantity supplied of a good or service to a change in its price.

%ΔQS / %ΔP
elastic and inelastic supply
Determinants of price elasticity

of supply
amount that costs rise as output increases
time period

in the markets
Indirect taxes, VAT, excise duties on cigarettes

petrol & alcohol

May be fixed per unit sold ( specific tax)
Asa % of the price at each stage of production (Ad valorem tax)

8th Ed. Harlow: Pearson